<p>A :A little searching on CC, and googling the interweb, shows the “student loan bubble” meme has been floating around since 2008 - basically since the financial crisis. This fall the meme will be three years old. </p>
<p>How long was the housing bubble meme around before the housing bubble burst?</p>
<p>B: because of the above, i just did something i never do, which is revive a very old thread - look on my stats for more interesting discussion of this issue ;)</p>
<p>Right now I’m reading ‘The Big Short’ by Michael Lewis about the subprime mortgage fiasco & the parallels to this situation are uncanny, albeit on a somewhat smaller scale. Are lenders making it easier & easier for students (and parents too I suppose) to borrow for education? I would have to say a resounding yes. Is there a rating system for these loans, like S&P’s or Moody’s? Probably not, just a paper trail of forbearance, deferrals, late payments, and then the inevitable default on a given loan.</p>
<p>It’s not a question of if but when. The BIG question is, then…in this instance, what is the by-product, the parallel to housing values in the subprime mess? Do we dare say that COA’s for college will take a 50% haircut? Or will that stay propped up (gotta perpetuate the myth, you know) and will the US Gov’t be left holding the bag?</p>
<p>I think the latter will take place.</p>
<p>"Are lenders making it easier & easier for students (and parents too I suppose) to borrow for education? I would have to say a resounding yes. "</p>
<p>really? versus 3 years ago? Or even 5 years ago? evidence?</p>
<p>okay, Im going to have to repost this</p>
<p>“In the case of a house, there’s tangible property. For the student, the goal is to buy a degree. But sometimes they don’t get it. I have a hard time with buying tuition. It doesn’t really make sense to be buying a service in a bubble as a service is temporary. So I guess the best I can see is the degree. Of course not everyone gets the degree.”</p>
<p>You are buying three things 1. Human capital (economic)- higher lifetime earning power 2. Human capital, non monetary (a better life - more intellectual, higher status, whatever - apart from earning power) 3. Consumption - four “fun” years</p>
<p>Lets hold the latter two to be minor, and for now focus on buying human capital in the conventional sense. Its complex cause you dont KNOW the value of the human capital you are buying - you dont know what the labor market will be like - you dont know what your wage will be if you go to a lesser college, or to no college - many dont know what they will major in when they enter - and theres a considerable amount of luck/unpredictability in getting that first job - will you happen to have a good interview the day you see the “right” companty - will you happen to be befriended by the highly networked professor, or by the one who does great research, but doesnt know any employers? etc, etc</p>
<p>Leave those uncertainties and controversies aside. because you are buying human capital, a bubble, in theory, is LESS likely to occur than for a saleable asset. Some folks buy a stock cause they like its long term cash flow. But others will buy it DESPITE doubting its long term cash flow, cause they think OTHER people will like its long term cash flow, and they can sell to them. Thats what creates asset bubbles, from the tulip mania to the dot com boom. In the case of housing, there were folks buying who clearly knew they could not afford to pay the implicit rents for housing services that 2005/early 2006 prices implied, but didnt care cause they expected to RESELL the houses.</p>
<p>You cant do that with a BA (or the human capital created by studying for, and graduating with, a BA). If you spend 200k on it, your salary HAS to cover it (or your parents, or the govt, or somebody). You cant SELL the asset to somebody else who wants it. Even if there are more and more folks wanting BAs from NYU - an NYU grad cant sell his degree to them - only NYU can take advantage of that. </p>
<p>That creates a very different economic dynamic, something that is obscured by using the “bubble bursting” language, which suggests and equivalence between the (quite real) issues and problems of student loans and higher ed finance, on the one hand, and asset bubbles on the other hand</p>
<p>BBD, I understood what you said the first time you posted it. And yes, having dealt with Pells, Staffords, ParentPLUS & GraduatePLUS loans over the last 7 years, I think I can say at least from my experience it ‘seems’ to be easier to manipulate loans in that sense. Defer, push off, change the length, etc. As long as the government keeps getting that 6.9%, I don’t think they give a rat’s patoot. </p>
<p>Is it getting easier to get these loans in the first place? Unknown, but I will say from first-hand knowledge that there were & are low-income people in our town that have taken out massive loans for their kids to attend Top 20 private universities. And the ONLY way they’ll ever pay them back is if the kid starts banging six figures immediately after graduation. And that’s for an undergraduate education, BTW.</p>
<p>You’re right–this ain’t a bubble, per se. Whether there’s a tangible asset or not, I’m just trying to determine who is going to be out the money when this hits.</p>
<p>“Also, I don’t see why people should be borrowing money for LIVING EXPENSES. Why should sleep away college be subsidized? You are borrowing not for the education, many times but for highly priced food and rents that may be more than the family is paying. Most kids have a commuting option that is affordable, and if they have to borrow to do that, so be it. They are borrowing to pay for an education. But to borrow additional funds so that they can live in the dorm and eat at the cafeteria or be on their own is not education”</p>
<p>My DD is entering an accredited B arch program. The only accredited B arch programs within possible commuting distance (and the commutes would be rough for an Archie) are either private or out of state public (here in NoVa we are in commuting distance to an out of state flagship, yeah). Given the FA package she got at RPI, those would likely be more expensive options (plus she didnt like UMD CP, and REALLY wouldnt fit in at Catholic U) </p>
<p>Not to mention, we will save on her food at home, and in theory could move to a smaller dwelling (we may not, but its on the table).</p>
<p>My son made the wise decision to save us and himself the need of borrowing $9,000 a year just to live at the large state school which is a 50 minute drive. Many of his friends who decided to attend the school did take out loans to live on campus and have the “college experience.” </p>
<p>First semester he was slightly bummed that the local commuter college offered little actual “college experience” but he knew that going in. Rather than sulk he threw himself into ECs and stayed busy meeting new people at the activities he was participating. Fast forward to winter break and he learned that many of those same kids borrowing money to live away from home and be psuedo-“independent” regret their decision and are planning to move back home and/or attend a local commuter college next year.</p>
<p>We are happy he made the decision to save money for at least one year and have told him that every year he can deal with this arrangement (which he admits is only bad when it comes to socializing with the ladies) is another year none of us are on the hook for borrowing money for him to LIVE…</p>
<p>which is basically what many people are doing if they get their tuition costs covered but are short on everything else.</p>
<p>[Student-Loan</a> Default Rates Worsen - WSJ.com](<a href=“Student-Loan Default Rates Worsen - WSJ”>Student-Loan Default Rates Worsen - WSJ)</p>
<p>The above linked article is very informative and has some recent numbers on default rates. The way default rates are calculated is changing and the numbers will show a spike in default rates when seen on a 3 year window instead of two. The gov’t will give schools a break at first but those whose default rates rise too high will lose their ability to give out gov’t loans. Some for profit schools have already been paying off defaulted student loans so as not to lose their ability to offer those same loans to new students.</p>
<p>I apologize if this was already posted</p>
<p>The dorm experience is hard to give up on. My 90+ YO mother still regrets, I kid you not, that she had to live at home in college (her parents had civil service jobs and moved to city of her highly regarded flagship U). It is not inconceivable that her parents could have afforded for her to live in dorm, but my Grandmother also let 11 neices and nephews live with her at various times to get them through college. My mother said none of her kids would live at home in college. Fact is, I would have rather lived at home, but colleges were cheaper then, and I was accepted to a school worth not living at home. </p>
<p>Its not easy to convince kids to give up on dorm experience, until they have experienced it.</p>
<p>I know when S1 was getting ready to go off to college I would have been more open to taking on debt. He went to a public that started at 24,000 per year. He did work study and took a small loan. He also worked full time in the summer and DH got an extra job. 4 years later, S will owe $14,000 and we all feel that is very doable. We also feel all the sacrifice was worth the great education and experience he had.</p>
<p>As S2 is starting to receive acceptances, I am way more skeptical. S2 got accepted to S1’s college yet it is now $30,000 a year and they offered us a loan to help pay. NO WAY! I am not taking on debt for something that can be gotten cheaper elsewhere. S2 is now waiting on all his college acceptances to check for cost after finaid. </p>
<p>Dream school just doesn’t make sense in this economy if you can’t afford it without going into significant debt. There are CC and local universities that can provide great educations as long as the student works hard and gets involved. I think it is good for the kids to have a reality check on what can be afforded.</p>
<p>
</p>
<p>What happens when the bubble bursts? Banks will stop handing out easy money to just anyone for college loans. That creates massive problems when tuitions per year at a ton of colleges are starting to exceed the average total household income per year. The only people then that will be able to afford to go to college will only be the super wealthy and the middle class will further be squeezed out of existence.</p>
<p>“Its not easy to convince kids to give up on dorm experience, until they have experienced it”</p>
<p>It’s really easy when you sit down and have an HONEST conversation about what you can afford and what they will have to afford in THEIR future. It’s also easy when parents say we will pay for ___ but not for ___ or will contribute only this ___ towards something you want that we can’t afford.</p>
<p>If you have raised your kids right then they want to do what is best for ALL involved and not just themselves.</p>
<p>There are situations when taking out large loans makes sense. I am not saying that every single parent/student who borrows even large amounts is making a mistake. I’m saying too many are doing so without thoughts of the consequences.</p>
<p>Denise, I dont think it is so easy. There is an entire industry of people trying to convince kids to go away to school. Colleges. High schools that want to say oh, we’ve got kids going here, there everywhere. Add to that banks that see the one loan they can make that is not dischargeable in bankuptcy. There is an army up against the students and parents. That is why the NY Senators, and many others, support legislation to change the bankruptcy law.</p>
<p>I guess it’s not easy to parent if you surrender the responsibility of influencing your children to outside forces. Parents who elected not to do this have been able to talk sensibly and maturely to their children about their finances and, more importantly, their students FUTURE finances in addition to the hype their students are hearing from their friends, the schools, and the entire industry you speak of.</p>
<p>This can’t be a first time discussion. If a child was raised given everything they asked for, rarely hearing the word no, or has been in an environment where keeping up with the Jonses was a priority in the home then this discussion might be coming a bit too late to have any real impact on the student. </p>
<p>IMO, it would not be the student’s fault. The parents need to suck it up and be the bad guys and do what is best for their finances and that of their future student. The student might ***** and moan now but in the future they will thank you.</p>
<p>I don’t understand the whole borrowing to live principle here. If it were completely totally necessary (like sudden job loss or illness) then I can sort of understand it. But many parents sanctioning this when they or their students can’t afford it would rightly scoff at the idea of using credit cards to pay rent, food, utilities, etc. And yet, they think idea is acceptable for their student with loans?</p>
<p>Ok denise, how do you justify that the banks have lobbied to make PRIVATE student loans not dischargeable in bankruptcy? Can you even think that it is not a fair playing field with banks v. students?</p>
<p>No other loans made by banks are not dischargeable in bankruptcy. Think that maybe that contributes to banks pushing loans on kids? how about supporting a change to that. See <a href=“OpenCongress - Track bills, votes, senators, and representatives in the U.S. Congress”>OpenCongress - Track bills, votes, senators, and representatives in the U.S. Congress;
<p>I am angry that the banks and the colleges have no incentive not to encourage kids to take on more debt. They have more recourses and no skin in the game.</p>
<p>The way I understand it, private student loans and federal government student loans (Staffords) are completely different animals, and discussing the two together confuses the issue.</p>
<p>The federal loans can never be discharged in bankruptcy, so there really is not much risk to the government in making these - the feds will simply garnish your wages until you die if necessary. But really, the maximum amount needed to pay off these loans is not that great - if the link in post #1 is correct, then it is a max of $293 per month, which can be deferred on hardship for 3 years. Any college or even high school grad who cannot make those payments a priority is a scofflaw.</p>
<p>Private student loans are a different animal. I don’t believe a student can even get one of these without an adult co-signer who qualifies for the loan. So if the student can’t pay, the adult (usually parents) will have to pay. No one is being taken advantage of here. Adults have no excuse to co-sign on a loan they do not intend to pay back.</p>
<p>I went to an OOS school with a co-op program so my parents and me split the costs (OK, they actually paid more) along with federal loans (thank you). I got two Master’s Degrees paid for by the government (I was working for them). Our son is probably going to the school with the most scholarship money and not the others who are more expensive. Before the recession, I would have been able to pay for the high end schools but that has changed. So I think we all get lured in by the top expensive schools but deeper analysis usually yields other more affordable options.</p>
<p>I’m in favor of federal loans. When the economy picks back up, students will be better able to pay their loans. What should never be supported are the for-profit online colleges which are shams.</p>
<p>So it’s the banks fault that students have parents who do not help them with the process of planning for their college education? The banks hold guns to the parents heads forcing them to convince their children to undergo crushing debt regardless of the risk? I don’t think so…</p>
<p>Look, I am ALL FOR STUDENT LOAN REFORM. I would be one of the first people in line to lobby for it having a bad personal experience myself as a student with a private school loan. Luckily a small loan amount before I figured out the for profit school was merely a school for profit. </p>
<p>But I am not about to hold the banks responsible for the lack of influence or reason I have with my children. Many of the large loans students need or require cosigners. Parents do not have to sign. It’s my view that parents are responsible for paying for college but that college has be a responsible choice with the parents current and students future means. Placing either parents or the student in huge financial debt is not a RESPONSIBLE CHOICE. </p>
<p>So let’s stop playing victim here and realize that the parents are NOT REQUIRED to send their children to a dream college, an elite college, an out of budget college. IMO, they are responsible to send their child to college but not necessarily one that little Susie or Joey wants to attend. </p>
<p>If the child is that hell bent on doing it then allow them to do it but don’t enable their irrational and irresponsible choices by cosigning or helping them get their lives off in a financial sink hole. Ultimately they will realize you were offering them guidance and assistance to help their future and it’s their responsibility for not listening and accepting it.</p>